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Regulatory Updates

Seeking Clarity – What Exactly is Class II Gaming?

AJ Naff, Editor Indian Gaming Magazine

Many questions and concerns have been raised regarding the NIGC's proposed Class II gaming regulations, which, according to the NIGC, seek to draw a clear distinction between Class II and Class III gaming machines. Numerous hearings and discussions have been held nationwide since these regulations were first proposed and last month's G2E tradeshow hosted a panel discussion on the topic. The four panelists from this discussion have summarized their positions on this important issue.

Phil Hogen, Chairman of the National Indian Gaming Commission (NIGC) and an Oglala Sioux from South Dakota

The Indian Gaming Regulatory Act (IGRA) has been a marvelous instrument that much of Indian Country has used to great advantage to bring economic development where it was desperately needed. Some of the genius of the Act lies in its clarity, and some lies in its imprecision. Altogether it has worked better than anything that has preceded it, however, it is not without shortcomings.

Lacking a crystal ball, Congress did not know what technology would bring to the gaming world when it passed IGRA in 1988. It did know, however, that there would be technological advances, and it wanted to assure that tribes could take advantage of those. When you examine the legislative history of IGRA, it becomes clear that Congress envisioned two types of gaming-bingo, which in 1988 tribes were conducting quite successfully, and “casino” gaming, which had not yet come to Indian Country. Casino gaming, Congress said, required a tribal-state compact. Bingo, and the other limited gaming Congress placed in Class II, tribes could offer so long as the state each was in didn't prohibit such gaming for everyone.

And therein is where imprecise language in IGRA has become most problematic. While compacted Class III gaming was the catch-all category (everything not Class I or II), Congress specifically said that a compact was required for “slot machines of any kind” and for “facsimiles of any game of chance.” Yet Congress also said that Class II games such as bingo could be played with “electronic and technologic aids.” Both terms can be read broadly, and when one does so, they overlap, and drawing a point of distinction is very challenging. While federal courts have addressed a couple of devices they deemed to qualify as permissible Class II technologic aids, in the years since those decisions were made, technology has moved well beyond the rather primitive models those courts considered. It may well be that if it is not already here, the time will come when it will be necessary for Congress to clarify where that line of separation is.

In the meantime, another section of IGRA tasked the National Indian Gaming Commission (NIGC), with promulgating federal standards for Indian gaming. Clearly, this is an area where enunciation of a clear distinction would be useful.

If NIGC adopts regulations that unduly limit the technology tribes might use for the play of games without a compact, Class II activity will be stifled in several quarters - such as in States that won't compact with tribes - and tribal needs will go unmet. If NIGC adopts regulations that permit electronic gaming that so closely resembles slot machines or facsimiles of games of chance, the clear distinction Congress intended will have been lost. Likely then, States will act to end or limit the “franchise” on electronic gaming many tribes now enjoy, or Congress will redraw the line to tribes' disadvantage.

NIGC has learned much in its consultations with tribes on this issue, and from the comments it has received and the studies it has commissioned as well. While some tribes may take a short-term view of this challenge - that is, seeking to maximize Class II revenues as quickly as possible with equipment that arguably should only be utilized pursuant to Class III compacts, thereby inviting systemic or statutory changes - NIGC does not have that luxury. The long-term impact of ignoring the need to put in place a workable distinction, based upon IGRA, the Congressional intent behind it, and court interpretations of it cannot be minimized. Thought must be given to future Indian generations and the continued need that they will have to utilize the two-tiered game classification tool created in IGRA for ongoing economic development.

NIGC will continue to review its regulatory proposal and the comments that it has received. It will soon decide if any such regulations should be finalized, and if so, the form they will take. NIGC does not underestimate the significance of these decisions or the implications they will have on the continued integrity of the regulatory scheme that was intended for, and is needed for, the long-term growth and success of the Indian gaming industry.

Phil Hogen can be reached by calling (202) 632-7003. For more information about the NIGC, visit www.nigc.gov

Brian Foster, Chairman of the Oklahoma Indian Gaming Association and General Manager of Lucky Star Casino for the Cheyenne & Arapaho Tribes of Oklahoma

What is bingo? If the answer sought by the reader is a detailed description of each aspect of all bingo games or related technology, it's not possible. A detailed definition would exclude games that plainly are bingo gaming. As one court concluded, “no common meaning of the term bingo emerges” and “bingo” includes “any number of different but related games.”

The reader in search of an answer to the question of what constitutes bingo gaming need not despair, and those in the know will readily acknowledge that the success of bingo gaming has been found in the variety of the game and related technology. An unambiguous answer to the question of what constitutes bingo for tribal gaming has been provided in the definitions provided by Congress in IGRA. A short answer to the question for tribal gaming is read the statute. Congress gave a definition in the IGRA of the characteristics of Class II bingo gaming and related technology for a set of games (bingo and if played at the same location pull-tabs, lotto, punch boards, tip jars, instant bingo, and other games similar to bingo) and then expressly provided for what is not authorized as Class II bingo gaming.

The definitions provided by Congress for bingo gaming in the IGRA are clear. Congress recognized that bingo comes in different “forms.” The only bingo-like or related games Congress did not allow as Class II gaming are live lottery games of the type offered by state lotteries (which the courts have already distinguished from Class II bingo gaming).

Congress provided that tribes have “maximum flexibility” to use technologic aids for all Class II bingo gaming provided that the technology is not a particular type of mechanical device (a slot machine) or its functional equivalent (a facsimile) in which one player plays a game with or against a device.

The NIGC is now attempting to define on its own, through extra-statutory and hyper-detailed definitions to be provided in proposed revisions to existing 25 C.F.R. §502.8 (NIGC's definition of “facsimile”) and §502.9 (NIGC's definition of “games similar to bingo”), and in a new 25 C.F.R. part 546, each aspect of bingo gaming and the technology used with that gaming. The NIGC may be well intentioned in its efforts, but Congress has spoken, and the federal courts have spoken. The courts, in looking at these very issues, have determined that the meaning of “bingo,” and “facsimile,” are clear from a plain reading of the IGRA, meaning that federal agencies such as the NIGC must follow Congress' words. Yet, the NIGC's new proposed regulatory definitions don't follow the IGRA, i.e., the statute, or prior binding court precedent.

If the NIGC would follow the IGRA and binding court precedent, and assuming for the sake of argument only that further defining regulations are necessary or even authorized by Congress, then all the NIGC need do is amend its existing definitions regulations found at 25 C.F.R.

If the NIGC is trying to answer the question presented, i.e., “what is bingo?” as provided by Congress and binding court precedent, the NIGC would not adopt its currently proposed 25 C.F.R. part 546 because it excludes gaming that Congress plainly included as Class II bingo gaming under the IGRA.

International Game Technology (IGT) is a member of the manufacturer's group providing input into the problems with rules proposed by NIGC for Class II technologic aids. The proposed regulations include many problems ranging from artificial time delays to prize restrictions, bans on auto-daubing as well as several other issues. The manufacturer's group includes: IGT, Rocket Gaming Systems, Multimedia Games, Bally Technologies, and Planet Bingo.

We have responded to a questionnaire from the National Indian Gaming Commission on the problems inherent to the proposed regulations. The questions and our response are posted at:

The manufacturer's group met with NIGC last month in Billings, Montana and shared our many concerns with the Commission. We also will be attending the December 5th NIGC meeting regarding the proposed regulations.

It is sovereign tribes who engage in Class II gaming and who stand to lose the most as a result of these proposed regulations. Tribes have taken the lead in opposing the proposed regulations. Acknowledging that and in support of the position held by virtually all tribes relative to the regulations, the manufacturer's group is concerned that the net effect of the proposed regulations would be to considerably slow the play of bingo. A slower game is no more bingo than a faster game. But, a slower game would have a devastating impact on the revenues earned by tribal bingo operations. A study commissioned by IGT and conducted by The Rose Institute of State and Local Government at Claremont McKenna College determined that, with the burdens proposed by these regulations, it could take as much as 13 seconds to play a single Class II game of bingo with an electronic aid. This will double or even triple game time compared to games offered today. Such an increase in game time will reduce gaming revenue for Class II operations by 40 to 70 percent. It will reduce Class II tribal gaming revenue nationwide by as much as $1 to $3.4 billion.

The Department of Justice and the NIGC are advocating that there must be a “bright line” between Class II and Class III gaming. Slowing the game is their means to achieve such a “bright line.” However, Congress, through the Indian Gaming Regulatory Act (IGRA), mandated no such “bright line.”

The 9th Circuit Court, looking at what Congress did intend in IGRA in the case U.S. v. 103 Electronic Gambling Devices, 223 F. 3d 1091, determined that the three elements of bingo mandated in IGRA were the sole means to determine if a game was bingo and thus Class II. IGRA defines bingo as a game in which players: “(1) Play for prizes with cards bearing numbers or other designations; (2) Cover numbers or designations when objects, similarly numbered or designated, are drawn or electronically determined; and (3) Win the game by being the first person to cover a designated pattern on such cards;” The Court's opinion noted:

“Whatever a nostalgic inquiry into the vital characteristics of the game as it was played in our childhoods or home towns might discover, IGRA's three explicit criteria, we hold, constitute the sole legal requirements for a game to count as Class II bingo.

There would have been no point to Congress's putting the three very specific factors in the statute if there were also other, implicit criteria.” Those three explicit criteria which define bingo are the only “bright line” required by Congress. The regulations proposed by NIGC go well beyond those three factors and would create a game quite different from bingo.

Knute Knudson can be reached by calling Knute Knudson can be reached by calling (775) 448-1528 or email knute.knudson@igt.com

Teri Poust, Partner, Holland & Knight, LLP

The most often discussed objection to the NIGC’s proposed rules regarding the classification of games under the Indian Gaming Regulatory Act (IGRA) is that they impose requirements never before needed for a game to fall within the category of Class II gaming. Existing systems were not built with these requirements in mind, and consequently, no game currently classified as Class II will survive this rulemaking. If finalized, all existing systems will automatically lose their Class II status and thus require a tribal-state ccompact for their continued operation.

Equally problematic, however, is the NIGC's concurrent proposal to amend its definitions. Any assertion that the current definitions violate IGRA by permitting facsimiles as a Class II game, ignores the plain language of the definitions, as well as the intent behind their enactment.

The current definitions were enacted in 2002, while I served as a Commissioner with the NIGC. As noted within the preamble to this earlier rulemaking, Congress intended for bingo, lotto, and games similar to bingo to be played in an electronic format, “even a wholly electronic format, provided that multiple players are playing with or against each other. … A manual component to the game is not necessary.” 67 Fed. Reg. 41,166, 41,171 (June 17, 2002). What is not allowed is a wholly electronic format that permits a player to play alone against a machine rather than with or against other players. So long as the electronic format - even a wholly electronic format - does not permit a player to play alone, the game by definition is not a facsimile.

The proposed definition, however, eliminates this distinction and provides that any wholly-electronic game - even bingo - is a facsimile, and therefore, Class III. The only way in which a system could retain its Class II status would be by including a manual element, such as a mechanical ball draw or a tangible card - a potentially devastating step backwards. The carve-out for games satisfying the NIGC's classification regulation does little to rectify this impact given the arbitrary restraints contained therein.

I likewise disagree with the proposal to redefine “games similar to bingo” in a way that encompasses many games that are currently “bingo.” Congress intended for this separate category to encompass a broader range of games than those satisfying the three statutory requirements of bingo. Otherwise, there would have been no need for its creation. Nor is it the case that this separate category was created to allow only minor modification, such as the number of squares on a bingo card. By improperly shifting games of bingo into the category of games similar to bingo, the NIGC is further restricting Class II gaming beyond what was intended.

The 2002 amendments came in response to both judicial and congressional criticism, and have been upheld by the courts. Absent similar criticism, a complete rewrite of the law - particularly one that will devastate the Class II industry - is unacceptable.